Manufacturing In Africa: Can Cheap Labour Make Africa The Manufacturing Hub of the World, Just Like China?
by Michael O’ Adetu
The world is changing and advancement in technology is making the manufacturing process even more efficient. Cheap labour will not continue to be a competitive advantage for countries like China, India and some other Asian countries. This is because advancement in AI technology will automate the majority of the manufacturing processes, especially for basic manufacturing that employs people on production lines. Cheap labour has served as an incentive for businesses from different parts of the world, to outsource a part or the whole of their product development to countries like India and China. Under the technological system, this will no longer be the case.
Automation will not only cut out the need for human labour in basic manufacturing but will create more efficiency in terms of eliminating human errors, bring an increase in product quality and quantity output and become very useful in gathering data for preventive maintenance of manufacturing machines. There have been comments on the possibility of Africa becoming the preferred destination for manufacturing in years to come due to cheap labour. Though some of those arguments could be true, the application of technology to manufacturing, especially in this era of fourth industrial revolution does not in any way put Africa in a strategic position to compete globally as the preferred destination for cheap manufacturing labour.
Considering the level of investment a country like China has committed to AI and machine learning in order to maintain operational excellence in manufacturing, African countries will probably need to rethink the best way to compete. The current situation across the majority of African countries clearly does not show the readiness of technological and human capital (skilled) to provide cost-effective manufacturing services to the world. China has become the manufacturing hub of the world because its government put appropriate policies in place, provides support and good infrastructure for small manufacturing businesses, and leverages on the large population working together to provide the cheap cost of manufacturing. These elements are not currently present in the majority of African countries. Most of them can boast of mainly a large population.
This is not a pessimistic analysis but an attempt to point out factors that must be taken into consideration by investors with interests in any of the manufacturing value chains in Africa. The capacity needed to put African manufacturing on the global map is not just there at the moment and the competition is becoming fiercer due to technological advancements. The competition across the world within the manufacturing space in this age and time is more against advance AI technology and machine learning.
The United Nations Industrial Development Organization report, presented in February 2019 shows that ‘African countries continue to struggle in their efforts to catch up with the industrial development of the rest of the world. The average share of manufacturing in GDP of African least developed countries (LDCs) has further dropped to 8.3 per cent compared to the 19.6 per cent average of the developing countries and emerging industrial economies group. This represents a serious challenge to the Sustainable Development Goal 9 target of doubling the MVA share in GDP in LDCs by 2030.’
During the 50th year anniversary celebration of the African Union, leaders across African countries engaged in high-level discussions which led to the adoption of Agenda 2063: The Africa We Want. At the core of this agenda is the desire to push forward sustainable development and inclusive growth for all African countries. The question I think that need immediate answer will be should manufacturing in African countries focus, at least for now, on meeting the demands of the African continent? I have outlined my thoughts on the direction I believe African manufacturing can take for now, in preparation for years to come
Reduce Cost of Doing Business
Many businesses (Especially small manufacturing businesses) close down or underperform in Africa, due to the enormous cost of doing business. There can be no true development within the manufacturing space in Africa when the cost of doing business is high. The government, through policymakers, must endeavor to be committed to addressing key issues like electricity, security, infrastructure that provides good accessibility to seaports and roads, access to funds with reasonable interest rates, corruption in government and related institutions, security, tax and levies. The setting up of the free trade zone has been able to address some of these issues in countries like Nigeria, Kenya, Rwanda and some other African countries, to help bring down the cost of manufacturing. However, more work still needs to be done as it is still difficult for small manufacturing businesses to take advantage of the opportunity.
Encourage Free Movement of Goods Across Africa
Over the past four years, there have been serious discussions about members of the African Union signed a free trade agreement that allows the Continental Free Trade Area (CFTA). This is a movement in the right direction as long as the common interest of all the citizens is duly protected. This agreement, when signed, will allow inter-African trade and that in itself allows access to a larger market with much bigger demand and supply matrix. The government should, therefore, work towards removing trade restriction to allow regional integrated trade networks at all levels. There is no need to commit resources for industrialization in Africa, just to compete in the provision of manufacturing services to other parts of the world. This is not realistic at the moment as the competition is not just against cheap human labour, rather it is against sophisticated technology which the African manufacturing space lacks. The African market is large enough and the manufacturing businesses in operation at the moment are not enough to meet the market demand across Africa. Having the discussion and getting signatures for the CFTA in Africa will create massive economic opportunities, not only for manufacturing businesses but for other industries across the continent.
Investment in Education and Human Capital Development
A large population only becomes a competitive advantage for any country when the people are educated and empowered with skills that are useful (in this context) within the manufacturing sector. Africa needs to invest in education that leads to both intellectual capability and skilled workers. Manufacturing businesses are constantly in need of these skilled workers, especially for basic manufacturing. There are currently not enough young skilled workers to meet the labour demands of manufacturing in Africa and this situation has left manufacturing businesses with no choice than to source for labour offshore. One way to begin to address this is for the government to encourage schools that teach vocational skills and ensure that the curriculum of traditional schools focuses on skill acquisition. Unemployment is one thing but unemployability is another thing entirely- The former is as a result of lack of jobs but the latter is caused by lack of required skills.
There is clearly no doubt that Africa has huge potential for manufacturing, considering its population and geographical location, just to mention a few. However, to have a successful manufacturing sector requires more than these, as demonstrated in China. Right policies, state of the art equipment, access to finance, access to skilled workers and sophisticated technology are some of the key elements to take into consideration. Lack of these elements does not put Africa in a strategic position to compete globally. Competition, as has been established in this piece, will come more from sophisticated AI technology and machine learning than cheap human labour and policies. African manufacturing should focus on serving the African market for now. A public-private partnership should be encouraged by government bodies across African regions to create an enabling environment for inclusive growth and sustainable development within the manufacturing sector. This is important for the African market because manufacturing will definitely play a major role in the development of the continent.
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